Global Wealth Distribution Earth Wealth
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By now it should be common knowledge to everyone that in American
society, the top wealthiest 1 percentile controls all the political
power, holds half the wealth, and pays what is claimed to be the bulk of
the taxes (despite mile wide tax loopholes and Swiss bank accounts).
The rest of the population is merely filler, programmed to buy every
latest self-cannibalizing iteration of the iPad/Pod while never again
paying their mortgage and brainwashed to watch 2 hours of prime time TV
commercials to keep it distracted from the fact that the last time
America was a democracy was around the time the Wright brothers were
arguing the pros and cons of frequent flier programs. So far so good.
But what about the rest of the world? How is wealth stratified in a
global perspective? Where do the "rich" live? What kind of wealth is
controlled by various countries? Where are the Ultra High Net Worth
people? For answers to all these questions, and much more, confirming
that just like in America, the wealthiest 0.5% control over 35% of world
wealth, Credit Suisse has compiled and released its latest "Global
Wealth Report." The findings are summarized here.
The first figure shows world wealth by region. The US, with its
wealth of about $50 trillion, accounts for 25% of total world wealth,
which at last check was about $200 trillion. And yes, Europe as a region
has a slightly greater wealth portion (32%) than does America (31%).
When it comes to geographic distribution, it is to be expected that
North America will have the greatest proportion of people in the ultra
wealthy category. Indeed, the chart below confirms this.
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Drilling down into asset composition in various countries, it becomes
obvious why the Fed is so focused on keeping the stock market high.
With America being the wealthiest country in the world, and the bulk of
US wealth held in financial assets, offset by a material amount of debt,
which confirms that a deflationary spiral would be the end for the
"wealth effect" so desired by Ben Bernanke. More from CS: "Consider
first the relative importance of financial versus non-financial assets,
and the size of debt. Expressed as a percentage of gross household
assets, the pattern clearly differs markedly between poorer and richer
countries and regions. In developing countries (see Figure 1), for
example India and Indonesia, it is common for 80% or more of total
assets to be held in the form of non-financial assets, largely housing
and farms. A high proportion of real property is also evident in
transition countries in Europe, reflecting in part the wholesale
privatization of housing in the 1990s. As countries develop and grow,
the importance of non-financial assets tends to decline, so that the
share in China, for instance, is now close to half. In the richest
countries, financial assets typically account for more than half of
household wealth. There are interesting exceptions to this general
pattern. Recent robust house price rises have propelled the share of
non-financial assets above 60% in France and some other major European
countries. South Africa, on the other hand, is an outlier in the
developing world, with exceptionally high holdings of financial assets:
the figure of 80% exceeds the share found in both the United States and
Japan." In other words, the more "developed" the world becomes, the
greater the amount of wealth tied into the perpetuation of the Ponzi
lies. Small wonder why so few in charge are willing to actually do
anything that changes the status quo.
Next, it is time to drill down in the specific composition of the financial assets.
Figure 2 provides more detail, showing the breakdown of financial
assets into three categories: currency and deposits, equities (all
shares and other equities held directly by households), and other
financial assets for selected countries. To add further detail, in most
countries the reserves of life insurance companies and pension funds
form the largest component of “other financial assets.” The composition
of financial assets differs considerably across countries, especially
with regard to the importance of shares and other equities. One
interesting trend we note is that equities are not always a large
component of household financial wealth, even in countries with very
active financial markets. In the United Kingdom and Japan, for example,
equities account for just 13% and 9% of total financial assets
respectively. In contrast, they make up 37% and 43% of financial assets
in Sweden and the USA, respectively. Broadly speaking, the relative
importance of currency and deposits falls as that of bonds and equities
increases. On the other hand, the portfolio share of “other financial
assets” does not vary a lot, staying in the range of about 40%–45%.
However, when we come to the UK, Japan and Colombia, which have the
lowest portfolio share of equities, the pattern breaks down. The UK has a
moderate currency and deposits share, but the largest “other financial
assets” share, reflecting large life insurance and pension reserves.
Colombia also has more in the form of “other financial assets” than is
typical. Japan, on the other hand, which has a strong tradition of
saving in deposit form, has a very large currency and deposits share and
only a 35% share of “other financial assets.”
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An interesting detour looks at gender distribution for asset holders
in the US and the UK. As the chart below shows, in the UK women appear
to hold more risky assets than men.
Looking at the history of global wealth per adult, net worth peaked
just before the first ponzi/credit/housing bubble popped, confirming
that a major portion of the then-record $50K/adult net wealth was
imaginary. Yet it may have far more to drop: as CS says, "despite the
financial crisis, the past decade has in fact been a relatively benign
period for household wealth accumulation. Global net worth per adult
rose 43% from USD 30,700 in the year 2000 to USD 43,800 by mid-2010.
Since the number of adults increased from 3.6 billion to 4.4 billion
over this period, aggregate household wealth rose by 72%.
One
important factor here was the depreciation of the dollar against most
major currencies, which accounts for part of the rise in
dollar-denominated values, but average net worth still increased by 24%
when exchange rates are held constant." The next question is
how much latent dollar devaluation has been accrued to this point and
how much more is due to only gradually emerge.
The next chart is rather self-explanatory. The richest nations, with
wealth in 2010 above USD 100,000 per adult, are found in North America,
Western Europe, and among the rich Asian-Pacific and Middle East
countries. They are topped by Switzerland, Norway, Australia, Singapore
and France, each of which records wealth per adult above USD 250,000.
Average wealth in other major economies such as the USA, Japan, the
United Kingdom and Canada also exceeds USD 200,000.
And some more detail on the various wealth regions:
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Emerging wealth: The band of wealth from USD 25,000 to USD 100,000
covers many recent EU entrants (Poland, Hungary, Czech Republic,
Slovakia, Latvia, Lithuania, Estonia, Cyprus) and important Latin
American countries (Mexico, Brazil, Chile), along with a number of
Middle Eastern nations (Lebanon, Saudi Arabia, Bahrain).
Frontier wealth: The main transition nations outside the EU,
including China, Russia, Belarus, Georgia, Kazakhstan and Mongolia, fall
in the USD 5,000 to USD 25,000 range, together with some of their Far
East neighbors (Indonesia, Thailand) and most of Latin America
(Colombia, Ecuador, Peru, El Salvador). The group also contains a
number of African nations at the southernmost tip (South Africa,
Botswana, Namibia) and on the Mediterranean coast (Morocco, Algeria,
Tunisia, Egypt).
Finally, the category below USD 5,000 comprises almost all of South
Asia, including India, Pakistan, Bangladesh and Nepal, and almost all of
Central and West Africa.
Next is a pie chart of with a detailed break down of wealth distribution by region.
Credit Suisse provides a look at geographic wealth distribution by decile:
To be among the wealthiest half of the world, an adult needs only USD
4,000 in assets, once debts have been subtracted. However, each adult
requires more than USD 72,000 to belong to the top 10% of global wealth
holders and more than USD 588,000 to be a member of the top 1%. The
bottom half of the global population together possess less than 2% of
global wealth, although wealth is growing fast for some members of this
segment. In sharp contrast, the richest 10% own 83% of the world’s
wealth, with the top 1% alone accounting for 43% of global assets.
Figure 4 shows how the regions of the world are represented amongst the
wealth deciles. Unsurprisingly for example, North America and Europe
together make up the lion’s share of the top wealth decile (10%). China
has relatively few representatives at the very top and bottom of the
global wealth distribution, but dominates the middle section, supplying
more than a third of those in deciles 4–8. The sizeable presence of
China in the middle section reflects not only its population size and
moderate average wealth level, but also relatively low wealth
inequality. China’s position in the global picture has shifted upwards
in the past decade as a consequence of a strong record of growth,
rising asset values and the appreciation of the renminbi relative to
the US dollar. China already has more people in the top 10% of global
wealth holders than any country except for the USA, Japan and Germany,
and is poised to overtake both Germany and Japan in the near future.
Next is the chart that everyone has seen as it pertains to America,
but few have seen in terms of the entire world. Per CS, Figure 1 shows
“The global wealth pyramid” in striking detail. It is made up of a solid
base of low wealth holders with upper tiers occupied by fewer and fewer
people. We estimate that 3 billion individuals – more than two thirds
of the global adult population – have wealth below USD 10,000. A further
billion adults (24% of the world population) are placed in the USD
10,000–100,000 range, leaving 358 million adults (8% of the world
population) with assets above USD 100,000. Figures for mid-2010
indicate that 24.2 million adults are above the threshold for dollar
millionaires.
While they make up less than 1% of the global adult
population, they own more than a third of global household wealth. More
specifically, individuals with wealth above USD 50 million are estimated
to number 81,000 worldwide.
Some more details on the various tiers of the pyramid:
Bottom of the pyramid
The
various tiers of the wealth pyramid have distinctive characteristics.
The base level is spread broadly across countries. It has significant
membership in all regions of the world, and spans a wide variety of
family circumstances. The upper wealth limit of USD 10,000 is a modest
sum in developed countries, excluding almost all adults who own houses,
with or without a mortgage. Nevertheless, a surprisingly large number of
individuals in advanced countries have limited savings or other assets.
A
high proportion are young people with little opportunity or interest in
accumulating wealth. In fact, limited amounts of tangible assets
combined with credit card debts and student loans lead many young people
to record negative net worth. In Denmark and Sweden, for example, 30%
of the population report negative wealth. This is an important and often
overlooked segment, not least in the context of the credit crisis.
Low
wealth is also a common feature of older age groups, particularly for
those individuals suffering ill health and exposed to high medical
bills. In fact, the means testing applied to many state benefits,
especially contributions to the cost of residential homes, provides an
incentive to shed wealth. Nevertheless, relatively few people in rich
countries have net worth below USD 10,000 throughout their adult life.
In essence, membership of the base section of the global wealth pyramid
is a transient, lifecycle phenomenon for most citizens in the developed
world.
The situation in low-income countries is different. More
than 90% of the adult population in India and Africa fall in this band;
in many low-income African countries, the fraction of the population is
close to 100%. However, the cost of living is usually much lower. For a
resident of India, for instance, assets of USD 10,000 would be
equivalent to about USD 30,000 to a resident of the United States. In
much of the developing world, this is enough to own a house or land –
albeit possibly with uncertain property rights – and to have a
comfortable lifestyle by local standards.
Middle of the pyramid
The
billion adults in the USD 10,000–100,000 range form the middle class
from the perspective of global wealth. With USD 32 trillion in total
wealth, it certainly carries economic weight. This tier has the most
regionally balanced membership, although China now contributes almost a
third of the total. The wealth range would cover the median person over
most of his adult life in high income countries. In middle income
countries it would apply to a middle class person in middle age.
However, in low-income countries only those in the top decile qualify,
restricting membership to significant landowners, successful
businessmen, professionals and the like.
High segment of the pyramid
When
we consider the “high” segment of the wealth pyramid – the group of
adults whose net worth exceeds USD 100,000 – the regional composition
begins to change. With almost 358 million adults worldwide, this group
is far from exclusive. But the typical member of the group is very
different in different parts of the world. In high income countries, the
threshold of USD 100,000 is well within the reach of middle-class
adults once careers have been established. In contrast, residents from
low-income countries would need to belong to the top percentile of
wealth holders, so only the exceptionally successful, well endowed or
well connected qualify.
The regional contrast shows up in the
fact that North America, Europe and the Asia-Pacific regions account for
92% of the global membership of the USD 100,000+ group, with Europe
alone home to 39% of the total. As far as individual countries are
concerned, the membership ranking depends on three factors: the
population size, the average wealth level, and wealth inequality within
the country. Only 15 countries host more than 1% of the global
membership. The USA comes top with 23% of the total. All three factors
reinforce each other in this instance: a large population combining with
high mean wealth and an unequal wealth distribution. Japan is a strong
runner-up, the only country at present to seriously challenge the
hegemony of the USA in the global wealth ranking. Although its relative
position has declined since the year 2000 due to lackluster stock market
and housing market performance, Japan is still home to 15% of
individuals with wealth above USD 100,000.
Top of the pyramid
At
the top of the pyramid, we find the world’s millionaires, where we
again witness a slightly different pattern of membership. The proportion
of members from the United States rises sharply to 41%, and the share
of members from outside of the North America, Europe and Asia-Pacific
regions falls to just 6%. The relative positions of most countries move
downwards, but there are exceptions. The French share is estimated to
double to 9%, while Sweden and Switzerland are each now credited with
more than 1% of the global membership.
And next, is a detailed look at the very top of the pyramid: those individuals which have over 1 million in net worth.
To assemble details of the pattern of wealth holdings above USD 1
million requires a high degree of ingenuity. The usual sources of data –
official statistics and sample surveys – become increasingly incomplete
and unreliable at high wealth levels. A growing number of publications
have followed the example of Forbes magazine by constructing “rich
lists,” which attempt to value the assets of particular named
individuals at the apex of the wealth pyramid. But very little is known
about the global pattern of asset holdings in the high net worth (HNW –
greater than USD 1 million) and ultra high net worth (UHNW – from USD 50
million upwards) range.
We bridge this gap by exploiting well-known statistical regularities
in the top wealth tail. Using only data from traditional sources in the
public domain yields a pattern of global wealth holdings in the USD
250,000 to USD 5 million range, which, when projected onward, predicts
about 1000 dollar billionaires for mid-2010. Although not exactly
comparable, this number is very close to the figure of 1,011 billionaire
holdings reported by Forbes magazine for February 2010. Making use of
the regional affiliation recorded in rich lists allows us to merge the
top tail details with data on the level and distribution of wealth
derived from traditional sources in order to generate a regional
breakdown of HNW and UHNW individuals. At this time, we do not attempt
to estimate the pattern of holdings across particular countries, except
China and India which are treated as separate regions. However, as a
rule of thumb, residents of the USA account for about 90% of the figure
for North America.
The base of the wealth pyramid is occupied by people from all
countries of the world at various stages of their lifecycle. In
contrast, HNW and UHNW individuals are heavily concentrated in
particular regions and countries, but the members tend to share a much
more similar lifestyle, often participating in the same global markets
for high coupon consumption items. The wealth portfolios of individuals
are also likely to be similar, dominated by financial assets and, in
particular, equity holdings in public companies traded in international
markets. For these reasons, using official exchange rates to value
assets is more appropriate, rather than using local price levels to
compare wealth holdings.
Our figures for mid-2010 indicate that there were 24.5 million HNW
individuals with wealth from USD 1 million to USD 50 million, of whom
the vast majority (22 million) fall in the USD 1–5 million range. North
America dominates the residence ranking, accounting for 11.1 million HNW
individuals (45% of the total). Europe accounts for 7.8 million (31.7%)
and 4.1 million reside in Asia-Pacific countries other than China and
India. We estimate that there are now more than 800,000 HNW individuals
in China, each worth between USD 1 million and USD 50 million (3.3% of
the global total). India, Africa and Latin America together host the
remaining 740,000 HNW individuals (3.0% of the total).
The take home message is that the wealthiest people in the world have
the bulk of their wealth entrenched in the current system and any
dramatic overhaul or reset of the status quo will be met by the stiff
resistance of those who can summon fleet of jets, private armies, and
even Fed chairmen on a whim. Whether anyone will have the wherewithal to
confront the broken system under such conditions remains to be seen.
And for those seeing more granular detail by country, below are the profiles of the 15 or so wealhtiest countries. Earth Wealth earth-wealth.blogspot.in/
